Growth & Justice Blog

Less Government? We Tried That. It's Not Working.

The Star Tribune's front-page story today finds that "less government'' is the overwhelming consensus "vision'' for Republican gubernatorial candidates. Peggy Lee and most Minnesotans want to know: Is that all there is?   

Leaving aside that this mantra sounds more like hard-right, activist-energizing radio talk than inclusive vision casting — and has to be extremely disappointing to hundreds of thousands of moderate and progressive Republican voters — we need some context here.   

The Price of Government, an official state Minnesota Management and Budget measure, shows that we DO have less government over the last decade, ever since the no-new-taxes religion, like some southern invasive species, got a hold on the North Star State. (See page 13 of the PowerPoint presented at the capitol last week by State Economist Tom Stinson and State Demographer Tom Gillaspy).

The bar graphs clearly show that our governments are using about two percentage points less (15.5 percent in 2008 compared to about 17.5 percent through the 1990s) of our personal income share than those governments were spending when the economy was actually doing better. Huge income tax cuts in 1999 and 2000 left us with chronic  budget crises, and the promised payoff in sustained, tide-rising economic growth didn't materialize, either.  

Wealth concentration at the top got worse, bridge and road conditions deteriorated, public school course offerings were cut, and thousands of working low-income folks lost their health care. And our economy is slumping and beginning to underperform the national average on some key indicators.  

We surely could use some more judicious restructuring and redesign of how we do our government work. But the basic things government provides are essential for our shared prosperity and quality of life.  

NOTE: The Price of Government measure is one of the most comprehensive of all the measures we have to describe the size and role of government. It counts state and local government revenues as a percentage of total income and therefore accounts for inflation, population growth and economic growth. It was instituted at the behest and with the approval of business groups in the late 1980s.

— Dane Smith

Minnesota Poll's progressive majority on health care

As a former reporter for the Star Tribune who wrote scores of news stories based on the Minnesota Poll, I am very familiar with the science of polling and its limitations,  and the crucial importance of context.    Here's some important context for the poll results and the headline that declared "Obama's support declines sharply.''   

 A drop in 10 percentage points on job approval, after the "honeymoon" and late in a president's first year,  is typical, but especially if he's mounting the most sweeping social and economic reforms in decades during the most serious recession in a century.    The coroporate bailouts and continuing war in the Middle East have  angered the left, the bailouts and the expansion of a public role in health-care have infuriated the right, everybody's still worried about their personal finances, and still the president's approval rating is about 20 points higher than his predecessor's.

The concerns about health-care transformation undoubtedly are an overriding factor but it appears that the dissatisfaction with Obama's plan comes from many liberal folks who wish he'd gone further.   Although Minnesotans disapprove of his overall "handling" of health care (45 percent to 39 percent),  there is clear approval of the  "public option'' despised by the right-wing critics (51 percent to 37 percent).   Most in the poll  approve a law requiring coverage (54 percent to 37 percent) and a slight plurality (43 percent to 40 percent) actually favor the overall changes being supported by Obama and his congressional allies.   Most important,  perhaps, the poll showed that about 40 percent of Minnesotans are either worried about losing coverage or are currently uninsured.

We've often made the case that there is a sustained majority in Minnesota who favor the moderate-to-progressive position on key economic and tax-budget issues.   These key issues include support for public education, transportation, public health-care, environmental protection and most of the worthwhile vital investments that our governments provide.    This majority also favors  a fairer and reasonably larger tax burden on those at the top of the income scale,  and polls show it opooses an  inflexible "no new taxes'' orthodoxy.

Dane Smith

International study spotlights the health care-small business connection

Credit Lee Egerstrom of MN2020 with finding this study by the Center for Economic and Policy Research that compares U.S. small business employment with that in 20 other rich nations.

By every measure of small business employment, the United States has among the world’s smallest small-business sectors (as a proportion of total national employment). The lower taxes, less stringent regulations, and freer labor markets in the United States, it appears, have not yielded greater small-business employment here than elsewhere.

That's right. Although it's an article of faith in both parties that small businesses fuel America's job creation and innovation, we're worse than an also-ran in the global economy.

The study looked at:

• self-employment (the U.S. has the second lowest share of self-employed workers at 7.2 percent)
• shares of small business employment in manufacturing (only Ireland (9.6 percent) and Luxembourg (8.5 percent) ranked lower than the U.S. (11.1 percent)
• high-tech fields — computer-related services and research and development —where we ranked second- and third-lowest, respectively (Luxembourg spanked us in both categories)
• and lower-tech services (“restaurants, bars, and canteens”; “real estate activities”; and “renting of machinery and equipment etc.”) where we ranked dead last.

One comforting myth is that businesses are started by entrepreneurs with a design for a better mousetrap or maverick employees who wrote a business plan to exploit an opportunity their employer refused to invest in. These start ups will overcome obstacles and grow into healthy, profitable enterprises that provide good jobs and make the world a better place.

The job statistics will tell you that Minnesota’s smallest businesses (with 1-19 employees) account for about one-quarter of all new jobs annually. Even when its job losses are counted, this segment provides a net gain of jobs about equal to the state’s overall private sector job growth.

A lot of these small business simply deliver basic services and provide individuals a way to make a living in an economy that increasingly relies on part time labor and independent contractors. For every long-time mom and pop store or entrepreneur with a dream to build a company, there are several spouses supplementing the household income, displaced executives “consulting” between jobs, and painters, programmers and truck drivers who don’t know who they’ll be working for or what they’ll be making next month.

These may represent "new jobs," but they are hardly an engine of economic growth. Nearly three quarters of "small businesses" in Minnesota do not have employees.

I believe the downsizing and outsourcing by larger corporations is responsible in large part for this “job growth.”

Nearly three quarters of small businesses in Minnesota do not have employees. Most of these business owners will tell you the biggest decision they face is whether to hire some help; most never will. The second biggest is whether to offer "benefits" — which means health care and a 401(k) plan.

By outsourcing more work to small businesses, corporations can effectively buy the services without incurring the obligation to provide benefits. We've seen this gambit occur also in the retail sector, where employers use part-time work as a way of avoiding providing health care and other employee benefits.

The CERP study puts this practice in global perspective. In countries where there's national health care, a real barrier to entrepreneurial growth is removed. People are more likely to start businesses — and hire employees — knowing that health care will not be a cost that constrains their growth.

When I started my business I made an early decision to provide employee benefits that were competitive with what big companies offered — because those were our clients, and we wanted to attract talent that was comparable to what a major corporation would hire. That was the right strategic decision for my business at that time, but I know many start ups and sole proprietors who see health care as a major cost that they can't risk funding.

As Lee Egerstrom says:

Without a universal health care system that moves insurance costs off the backs of doing business, we will continue to thwart entrepreneurial development and we will continue to encourage large manufacturers and service providers to keep out-sourcing and off-shoring work and jobs.

Unless, of course, companies in those more enlightened countries simply take the business away from us.

— Charlie Quimby. Cross-posted from Across the Great Divide.

Hollowing out the public sector affects public safety

Our continuing and increasingly dubious experiment with starving the public sector in Minnesota is producing almost daily reports of questionable budget cuts.   A Star Tribune front-page story on disappearing lifeguards at public beaches is the latest manifestation of our increasingly penurious fiscal policy.    Anti-government conservatives like to claim that much or most of government investment is unnecesssary or superfluous, and that all we really need are military forces, courts and police to protect property.   But it turns out that a relentless ratcheting down of public investment affects public safety in myriad ways:  crumbling bridges, less attention to mesothelioma incidence in northern Minnesota miners, Local Government Aid cuts that force police and emergency service layoffs, hospital reimbursement cuts that hamper emergency rooms in the midst of an ongoing swine flu pandemic, and on and on.    Public safety is a primary responsibility of our entirely legitimate and mostly effective state-and-local government systems.    Most of the things those governments do eventually have something to do with public safety and providing for the "General Welfare," an often overlooked primary goal that is spelled out in the United States Constitution.    And these systems can't be funded without fair and ample tax revenues.

Dane Smith

Healthcare reform lessons from small town America

“Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

— "The Cost Conundrum: What a Texas town can teach us about health care," The New Yorker

We know health care cost growth must be contained. It's hampering our competitiveness, bankrupting families and hamstringing state and federal budgets. But any hope for a systems solution gets tangled in the political struggle that pits free marketry against creeping socialism in every area of community life.

But what if the free market chose something that looked more like "socialized medicine" — and it worked?

That's one intriguing possibility found in surgeon Atul Gawande's New Yorker article, which looks at high-cost and low-cost health care systems around the country. In light of the evidence, none of the leading theories about why costs grow out of control account for dramatic health care cost and quality differences among otherwise similar communities.

Looking at McAllen, Texas, one of the most costly healthcare markets in the nation, Gawande found that "the primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine." What's more, overutilization was not producing better outcomes there or elsewhere.

Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. In fact, the four states with the highest levels of spending—Louisiana, Texas, California, and Florida—were near the bottom of the national rankings on the quality of patient care.
[...]
In an odd way, this news is reassuring. Universal coverage won’t be feasible unless we can control costs. Policymakers have worried that doing so would require rationing, which the public would never go along with. So the idea that there’s plenty of fat in the system is proving deeply attractive. “Nearly thirty per cent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas,” Peter Orszag, the President’s budget director, has stated.

But what, exactly, accounts for the fat?

Gawande looks at, but finds little evidence to indict, the usual suspects: Government, consumers with little skin in the game, greedy hospitals and insurance companies, unhealthy habits and skewed provider incentives. Instead, he points to a culture shift in the culture of medical practice that mirrors a change in society.

A focus on money, not healthy communities.

The article suggests that physicians are not equipped — with training or data — to focus on the financial considerations of their decisions, while the business orientation of hospitals and insurance companies requires them to focus on

whether they are losing money or making money. They know that if their doctors bring in enough business—surgery, imaging, home-nursing referrals—they make money; and if they get the doctors to bring in more, they make more. But they have only the vaguest notion of whether the doctors are making their communities as healthy as they can, or whether they are more or less efficient than their counterparts elsewhere.

According to Gawande, Stanford sociologist Woody Powell — studying why certain regions became leaders in biotechnology while similar centers did not — has formulated a theory of economic development which holds that "anchor tenants" define the character of an economic community, just as anchor tenants in a mall do. By setting certain collaborative community norms, anchor tenants encouraged successful communities, while those aiming to dominate did not.

Powell suspects that anchor tenants play a similarly powerful community role in other areas of economics, too, and health care may be no exception. About fifteen years ago, it seems, something began to change in McAllen. A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did. So here, along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.

The difference between McAllen and Grand Junction, Colorado, one of the nation's lowest-cost markets with some of the highest quality-of-care scores, may be the difference between a culture focused on money versus one focused on a healthy community.

[Y]ears ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients. They also agreed, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

Grand Junction’s medical community was not following anyone else’s recipe. But, like Mayo, it created what Elliott Fisher, of Dartmouth, calls an accountable-care organization. The leading doctors and the hospital system adopted measures to blunt harmful financial incentives, and they took collective responsibility for improving the sum total of patient care.

It almost sounds like socialism, except Grand Junction is politically a very conservative community. Go figure.

— Charlie Quimby

Unenforced regulation benefits no one

Spending some quality time in another state inevitably invites comparisons back home. Nearly every day, I read a story in the Colorado press that evokes a comparison with Minnesota.

The story that prompted this post describes a suit against the Colorado insurance commission and department of public health:

State officials have allowed nursing homes to operate without insurance in violation of state law, leaving vulnerable residents without recourse when they are abused and neglected, lawyers charged in a lawsuit filed Friday.

Colorado state law requires nursing homes to have liability insurance. When the industry complained that the required $3-million policies were getting too expensive, the department of health adopted a policy allowing the homes to self-insure if they submitted affidavits to the insurance commission stating they had set aside up to $1 million to handle claims.

The lawsuit claims at least one company with a poor record with regulators submitted false information to the state, which did nothing to verify it. The suit asks the courts to require the state to make sure the homes are properly insured.

Stories like this raise broader questions about whether regulation is working the way it should, as well as arguments that government should not be regulating so many aspects of business operations.

The anti-regulation screed sounds something like this: "This is just one more example of a nanny state failure. Regulation adds to business costs and doesn't actually protect consumers who assume the government is taking care of a problem. Citizens would be safer if they took responsibility for their own affairs, instead of trusting government to regulate private businesses."

When small government advocates look for places to cut "non-essential" government services, this sort of regulation might well be on their list.

It certainly sounds like an agency fell down on the job — at least to the extent it trusted a national company to file truthful reports. We also know Colorado is one of the lowest-spending states on a per-dollar-of-personal-income basis, and in 2006 it ranked last among states on spending for public welfare. Presumably, officials in state agencies have to prioritize where they will spend their limited dollars. Monitoring compliance with insurance regulations may seem like a lower priority than making sure all patients are being taken care of appropriately.

If the company named in the suit was indeed skirting the liability coverage regulations, what other corners were being cut? And how do we know those shortcomings will come to light?

Starving government starts with starving inspections and audits that show taxpayers their dollars are being well-spent. Then, when problems surface, that's used as an example of how regulation isn't working and should be abolished.

But what's the alternative? If an underfunded agency can't verify a company was properly insured, how will individual consumers make that determination? How efficient is it for companies to handle individual queries that could be handled on a statewide basis? And what are the costs to society if "the marketplace" doesn't self-regulate?

These questions are not just about this specific issue of nursing home liability insurance. They apply broadly to the roles we want government to play on our behalf and what happens when we set the expectation without funding the follow through.

Finally, I wondered, does Minnesota require similar liability insurance coverage or reserves to handle claims? Speaking as a member of the general public, I can't easily tell whether state agencies or the nursing home companies have addressed this. And speaking as a taxpayer, I don't know how much those assurances would be worth to me.

[Note: Lee Egerstrom of Minnesota 2020 comes at insurance regulation from another angle, how closely the state reviews insurance products offered to consumers.]

— Charlie Quimby

Reaching across the river... and the aisle

"Government has got to change," Minnesota Gov. Tim Pawlenty said, standing next to Wisconsin Gov. Jim Doyle at a news conference in St. Paul. "We can't sustain what is going on."
— Star Tribune

Shared services across governmental boundaries is an idea whose time is past due. Congratulations to the governors for taking the initiative to explore joint commodity purchasing, sharing expensive assets and combining service operations like licensing.

Here's another idea. Share some of the common functions of state health departments.

We praised Minnesota's Department of Health the last time it solved a national salmonella outbreak, and they've done it again. If other states want a model center of excellence, they'd find one here. But such excellence isn't easily replicated. It takes the support of a strong, research-oriented University system, a culture of public service and a history of investment.

Counties, school districts and municipalities are also taking a closer look. In my personal blog, I wrote about a proposal to merge federal land agencies.

And I couldn't help noticing that those governors didn't just represent two neighboring states — they represented an [R] and a [D].

— Charlie Quimby

Business-friendly Minnesota needs higher goals, broader thinking

St. Cloud conservative blogger Gary Gross caught my attention with this lead to a recent post:

When the conversation turns to making Minnesota a business-friendly state, most conservatives rightfully think of cutting taxes and reducing small business's regulatory burden. It's time conservatives started thinking in terms of a well-educated workforce and health care reform as important to making Minnesota business-friendly, too.

While his views on how to address these issues don't precisely square with ours, his larger point — that conservatives should put greater emphasis on them — is well taken... especially if the emphasis involves study and empirically driven reforms focused on strategically important goals.

Progressives should have their own list. For starters, I'd say the party perceived as being government- and labor-friendly should start speaking more favorably of entrepreneurism and system reform.

As the current recession shows, building a business-friendly state is not simply a matter of driving down costs and freeing business to operate with minimal restraints. We'll never get there without a healthy, productive workforce and affordable housing and transportation systems.

The public benefits when policy makers rise above ideologically derived positions and remind each other that Minnesotans have a lot at stake together. Otherwise, one side sees the health care issue as being driven by unsustainable costs to business, so reducing them becomes the goal of reform — while paying lip service to consumer choice and quality care. The other side wants access and a secure safety net, so universal coverage is their goal — while the costs are either wished away or picked up by the ever-popular "rich."

Of course, this sets up an irresolvable conflict between selfish, numbers-driven business interests and clueless, entitlement-driven socialists, each regarding the other as the root of the problem.

Defining the right strategic outcome is critical, because in politics, the ends don't only justify the means — they determine what we're going to achieve .

Minnesota can relish its investment in health.

In less than two weeks, Minnesota Department of Health investigators traced the source of a mysterious salmonella outbreak that had stumped federal health officials for two months and sickened more than 1,200 people in 43 states and Canada.

[...]

What made Minnesota's search quicker?

[The Department of Health's Kirk] Smith said investigations are centralized at the state level. The CDC and the FDA rely on local health departments, usually at the county or city level, which can cause enormous logistical problems.

Minnesota also has a lab that can immediately identify pathogens down to their DNA, and investigators who interview everyone infected by salmonella, an average of 700 cases per year.

In other states, health officials often won't follow a trail beyond state borders. [Minnesota Department of Agriculture's Ben] Miller follows it wherever it leads.

— Star Tribune

Too often debates over taxes and spending focus only on the spending side of the ledger, with the added implication that Minnesota could do just fine ranking somewhere in the middle of the pack.

The search for the cause of the recent nationwide salmonella outbreak brought to the fore the value of having professional, well-managed state departments that take a broad view of their responsibilities. Once the disease struck our citizens, Minnesota's investigators in two cooperating agencies promptly got to the bottom of the case and aided federal authorities who had initially misidentified tomatoes as the source of the outbreak.

Sometimes centralized government is identified with bureaucracy. Public servants become branded as time wasters riding on the taxpayer-pulled wagon. Private industry, we are told, can do a fine job of producing safe products and watching out for the public interest if government would just get out of the way.

Right now, consumers and produce growers around the country can be thankful that Minnesota hasn't yet  swallowed that.

— Charlie Quimby

Health care fund shifts are no cure for the budget

One of Gov. Pawlenty's solutions for balancing the budget is something he's employed before — shifting surplus Health Care Access Fund (HCAF) money to the General Fund. (He's also moving some health-related costs now paid for out of the General Fund to the HCAF for a total shift of $400 million.)

It may look like a surplus exists because the state simply collects too much from hospitals and health care providers. But at least part of the surplus is the result of raising the eligibility bar for MinnesotaCare and serving fewer people, after raiding the fund the last time the governor needed a no-new-taxes budget fix.

Back in 1992, the health care community reluctantly agreed to the 2 percent tax based on a commitment that the funds would be reserved to give more Minnesotans access to preventative and primary care, which in turn would lower overall statewide health care costs.

No wonder they're calling foul now.

A recent commentary by Dr. Jack Bert calls the proposed shift "not only immoral but unethical" because the money could be used to extend care to patients who presently can't afford or don't qualify for other insurance programs. As a result, these patients are often cared for free by the very doctors and hospitals being taxed to help them afford insurance.

Dr. Bert could've also called the shift "pound foolish."

Between 2001 and 2004, the share of Minnesotans with employer-based health insurance declined from 68.4 percent to 62.9 percent. While enrollment in MinnesotaCare rose during most of this period, it wasn't enough to offset the decline in private coverage.

MinnesotaCare enrollment began to fall from its 2003 peak by about 23 percent over the next three years. In the first two years of declining enrollment, uncompensated health care costs — charity care and bad debt, largely from Minnesotans who simply can't pay — jumped 40 percent, according to a 2007 Minnesota Department of Health report [Download pdf]. The rise, adjusted for inflation, occurred after a period of relative stability [click to enlarge the graph].

The impact fell largely on taxpayer-supported, county- and city-owned hospitals, where uncompensated care averages 4 percent of total operating expenses, driven by costs at Hennepin County Medical Center, which delivers nearly 75 percent of the $45.2 million of uncompensated care in government-owned hospitals.

With the addition of care provided by private hospitals, physicians and clinics, the statewide total cost is about $250 million.

A 2006 preliminary report [Download pdf] from the Health Department estimating the cost to cover all of Minnesota's uninsured stated:

Explicitly funding [uncompensated] care by providing insurance coverage would reduce the need for other cross-subsidies that are currently built into the health care system, such as
public subsidies to offset the cost of uncompensated care (e.g., over $130 million in federal and state payments to Minnesota hospitals were made in 2004 to offset these costs) or cross-subsidies that are currently being paid by people with private insurance who pay higher prices to cover the cost of uncompensated care provided to the uninsured.  Indeed, one of the original premises behind the MinnesotaCare program was that a significant portion of the program’s spending would represent a shift of funds that were already in the health care system, as opposed to new spending.

So is shifting surplus HCAF dollars to pay off non-healthcare expenses the best use of the money?

I haven't found a definitive estimate of cost cost avoidance and cost savings from extending MinnesotaCare coverage, but a 2003 University of Minnesota Study [Download pdf] found that

a one percentage-point increase in MinnesotaCare enrollment was correlated with a $2.19 decrease in uncompensated care spending per capita.

Translated into system-wide savings, between the 1996–1999 study period,

hospitals spent $58.6 million less on uncompensated care than they would have without the program.

A 2006 Wisconsin study of its BadgerCare program [Download pdf], similar to MinnesotaCare, found even larger cost reductions (1 percent increase in BadgerCare enrollment resulting in $3.67 decrease) as more low-income families enrolled.

Based on a quick calculation using numbers from the Minnesota reports, a 1% increase in MinnCare enrollment would appear to cost the state about $2.1 million — it pays about 40 percent of the insured's cost — and would save $11.3 million in uncompensated care costs. (Children are cheaper to cover, and the payback on their preventive care may be higher than average.)

Take my number with a big grain of caveat, but it suggests this is worth a closer look by analysts.

Forsaking bigger future benefits to save a few dollars immediately is a real temptation at budget crunch time. And as Dr. Sylvia Sekhon says here, this isn't the only tempting health-related maneuver in the Governor's revised budget.

Here's a case where the Governor ought to listen to medical advice.

UPDATE: A Dolan Media story reports that a 2003 law, passed after the last time HCAF funds were used to plug holes in the budget, prohibits such shifts. The Governor's office contends it's allowed, because the shift would allow the state to avoid cuts to health care programs.

— Charlie Quimby